How does spatial dependence affect cost pass-through? Evidence from the Hungarian retail gasoline market
How does spatial dependence affect cost pass-through? Evidence from the Hungarian retail gasoline market

Summary/Abstract: A large part of market theory literature focuses on the cost pass-through behaviour of firms, as it is an essential instrument in the analytical toolkit of competition authorities when carrying out market structure-related examinations. Although spatial relations are well documented in many markets, cost pass-through analysis frameworks do not seem to incorporate these issues. Applying an error correction-based estimation strategy extended by a spatial econometric frame-work, the present paper provides evidence that spatial dependence appears significantly in the cost pass-through behaviour of firms. This suggests that, on the one hand, the detected symmetric cost pass-through may cover the properties of the competition. On the other hand, competition authorities should consider spatial dependencies when preparing court-case decisions to avoid verdicts arising from presumably spurious analysis results.

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